Donor countries given performance benchmarks for Australian foreign aid under changes announced by Julie Bishop

Australia's foreign aid will undergo a "dramatic change", with foreign governments set to sign up to performance benchmarks in a move aimed at better monitoring how taxpayers' dollars are spent.

In what Foreign Minister Julie Bishop says are "radical" changes, aid programs will be delivered in partnership with the private sector.

Ms Bishop unveiled the new policy at the National Press Club, where she confirmed 90 per cent of Australia's aid program would be diverted to Australia's "immediate neighbourhood" - the Indo-Pacific region.

In an interview with the ABC, Ms Bishop said she wanted to move the aid mentality away from a "donor-recipient" relationship, to one centred on economic partnership and development.

"The world has changed and our aid must change with it," Ms Bishop told the ABC.

"We recognise that aid alone is not a panacea for poverty and so we're bringing a whole new fresh approach to it."

"We're not getting the outcomes we should expect from the billions and billions of dollars we invest in aid, so I want to see better outcomes."

She said performance benchmarks would be critical to the new way aid money was spent, stressing it would be in partnership with recipient countries.

"Performance benchmarks are part of the new aid policy to ensure ... that we meet those benchmarks so that recipient governments also take responsibility for the delivery of aid and the implementation of aid programs," she said.

"If they receive Australian aid we will discuss with them, consult with them, about how to get the best outcomes.

We're not getting the outcomes we should expect from the billions and billions of dollars we invest in aid, so I want to see better outcomes.

Foreign Minister Julie Bishop.

"We want to be economic partners, we want to move away from the old stereotype of aid donor/aid recipient, and work in partnership with countries, particularly in the Pacific."

The Coalition cut the aid budget by $7.6 billion over five years when it handed down its first budget in May.

It was the single biggest savings measure announced and will see Australia's aid budget capped at $5 billion over the next two financial years.

The Federal Opposition says budget cuts will undermine the Government's new changes to foreign aid.

Labor's foreign affairs spokeswoman Tanya Plibersek says her party supports the regional approach but not the Government's funding methods.

"There's a $7.6 billion cut to aid in the budget, the single largest cut in the budget," she said.

"So we're looking forward to the speech today and we're going to be welcoming, at least, a target that still has a poverty focus."

He said that performance benchmarks are important and that "we can always do better" in the delivery of foreign aid.

"In the millennium development goals, which have been fantastic for lifting people out of poverty because we've had a focus, we know we've been off target but because we've got a target we actually know and organise around it," Mr Costello said.

However, Matt Tinkler from Save the Children fears the private sector will not always deliver what is needed.

"If private sector are chasing commercial returns then by their very nature they are unlikely to occur in the hardest to reach places," he said.

Ms Bishop said Australia had been in "deep and broad" consultations with recipient governments about the new expectations.

She agreed the new policy was a "dramatic change" in Australia's aid program, which has sustained major budget cuts and a bureaucratic transformation, with AusAid merged into the Department of Foreign Affairs.